Microchip Technology Incorporated · NASDAQ:MCHP
Microchip Technology — Investor Day (November 2021)
140 slides from Microchip Technology's investor day presentation, Nov 8, 2021
Slide 1: 2021 Investor & Analyst Day
2021 Investor & Analyst Day Empowering Innovation & Delivering Stakeholder Results November 8th, 2021
Slide 2: Safe Harbor
Safe Harbor Forward Looking Statement Safe Harbor. During the course of this presentation, we will make projections or other forward-looking statements regarding the future financial performance of the company or future events, including our vision, strategy, growth, market trends, expected revenue
Slide 3: Agenda
Agenda • Overview and Value Proposition • Capital Return Strategy • Business Growth Strategy • Enabling Our Business Growth • Summary • Q&A 3
Slide 4: Overview and Value Proposition
Overview and Value Proposition Eric Bjornholt, SVP & CFO Ganesh Moorthy, President & CEO
Slide 5: Corporate Overview
Corporate Overview Leading Total Systems Solutions Provider: • High-performance standard and specialized • Clock and Timing solutions Microcontroller, Digital Signal Controller and • Wireless and Wired Connectivity solutions Microprocessor solutions • FPGA solutions • Mixed-Signal, Analog, Interface
Slide 6: Our Purpose
Our Purpose Empowering innovation which enhances the human experience by delivering smart, connected and secure technology solutions 6
Slide 7: Our Vision
Our Vision Be The Very Best Embedded Control Solutions Company Ever 7
Slide 8: Our Mission
Our Mission In order to contribute to the ongoing success of customers, employees, shareholders and the communities in which we operate, our mission is to focus resources on high value, high quality products, total system solutions, software and services, and to continuously improve all aspects of o
Slide 9: Microchip 2.0
Microchip 2.0 Sustained growth from Built company scale and Total System Solutions organic efforts and product line breadth enabled by product line acquisitions through acquisitions breadth Continuing market share Large exposure to Industrial Solutions with very long gains in Microcontrollers and Au
Slide 10: Providing Total System Solutions
Providing Total System Solutions Portfolio of Hardware, Software and Services Power Management RFICs MMICs DC-DC Converters Encryption Supervisors & Ref. & High Voltage Precision LDOs, Battery Mgt. Digital Security I/Os Voltage Discretes & Modules Potentiometer Reference Motor Sensors Drivers Amplif
Slide 11: Worldwide Microcontroller Market Share
Worldwide Microcontroller Market Share No. 1991 Rank 1996 Rank 2003 Rank 2008 Rank 2009 Rank 2014 Rank 2019 Rank 2020 Rank 1 Motorola Motorola Renesas Renesas Renesas Renesas Renesas 9.0% Renesas 2 Intel NEC Motorola NEC NEC Freescale NXP NXP 3.6% 7.5% 3 Philips Philips NEC Freescale Freescale ST-Mi
Slide 12: Analog Revenue Growth
Analog Revenue Growth 2,000 Growing faster than the market 1,600 $ Million 1,200 800 400 0 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 RR 12 * Run rate for FY22 represents actual results for the first two quarters *2
Slide 13: Revenue By End Market
Revenue By End Market 12% 29% Industrial 13% Data Center & Computing Automotive Communication 13% Consumer Aerospace & Defense 15% 18% 13 * End market diversification based on management estimates for the fiscal year ending March 31, 2021
Slide 14: Our Market Megatrends
Our Market Megatrends Industrial 5G Data Center IoT/Edge Computing & Computing Data Automotive Centers Communications Electric Vehicle Aerospace & Defense AI/Machine Learning Consumer ADAS/Autonomous Driving 14
Slide 15: Revenue By Megatrend
Revenue By Megatrend Megatrends currently represent ~1/3 of total revenue 3.4% 6.0% 7.1% 6.3% 5G IoT Data Center 35.4% EV ADAS AI/ML 41.8% We expect our revenue from Megatrends to grow at ~2X Microchip’s growth rate 15 * Revenue by Megatrend based on management estimates for the fiscal year ending M
Slide 16: Our Broad Market Business
Our Broad Market Business Currently represents ~2/3 of total revenue Highly fragmented business – Solid business foundation that is fragmentation is our friend! durable and defensible Continuously elbows out Identifies new and emerging into adjacent spaces applications and markets 16
Slide 17: Growing SAM
Growing SAM $84B $60B 2020 2025 Broad Market Megatrend Broad Market + Megatrend CAGR: 7% Megatrend CAGR: 14.3% 17 Source: Microchip internal estimate
Slide 18: Net Sales Growth
Net Sales Growth 7,000 6,000 124 consecutive quarters of Non-GAAP profitability! 5,000 $ Million 4,000 3,000 2,000 1,000 0 FY93 FY94 FY95 FY96 FY97 FY98 FY99 FY00 FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 RR MCU Analog Other 18 * Ru
Slide 19: Non-GAAP Gross Profit
Non-GAAP Gross Profit 4,500 70.0% 18.3% CAGR 4,000 68.0% 3,500 66.0% $ Million 3,000 64.0% 2,500 62.0% 2,000 60.0% 1,500 58.0% 1,000 56.0% 500 54.0% 0 52.0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 RR* Non-GAAP Gross Profit Non-GAAP Gross Profit as a % of Non-GAAP Net Sales 19 * Run ra
Slide 20: Non-GAAP Operating Income
Non-GAAP Operating Income 3,000 47.5% 20.2% CAGR 2,500 43.5% $ Million 2,000 39.5% 1,500 35.5% 1,000 31.5% 500 27.5% 0 23.5% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 RR* Non-GAAP Operating Income Non-GAAP Operating Income as a % of Non-GAAP Net Sales 20 * Run rate for FY22 represents (
Slide 21: Adjusted EBITDA
Adjusted EBITDA 3,500 50.0% 18.9% CAGR 3,000 45.5% 2,500 $ Million 41.0% 2,000 36.5% 1,500 32.0% 1,000 27.5% 500 0 23.0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 RR* EBITDA EBITDA as a % of Non-GAAP Net Sales 21 * Run rate for FY22 represents (actual results for the first two quarters
Slide 22: Free Cash Flow
Free Cash Flow 2,500 35.0% 20.4% CAGR 2,000 32.0% $ Million 1,500 29.0% 1,000 26.0% 500 23.0% 0 20.0% FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22 RR* Free Cash Flow** Free Cash Flow as a % of Non-GAAP Net Sales 22 * Run rate for FY22 represents (actual results for the first two quarters p
Slide 23: Strengthening Our Balance Sheet
Strengthening Our Balance Sheet Over the last full 13 quarters since Microsemi acquisition closed (May 2018), we have paid down $4.41 billion of debt Repurchased $4.15 billion of deep in the money convertible bonds In December 2020, refinanced $1.4 billion of Term Loan B with a three-year secured bo
Slide 24: Net Debt, Adjusted EBITDA & Net Leverage
Net Debt, Adjusted EBITDA & Net Leverage 14,000 7.00 12,000 6.00 10,000 5.00 $ Million 8,000 4.00 6,000 3.00 4,000 2.00 2,000 1.00 0 0.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY19 FY20 FY21 FY22 Net Debt* Adjusted EBITDA** Net Leverage 24 * Net debt is defined as total debt less cash/investment
Slide 25: Total Debt
Total Debt 14,000 7.0% 12,000 6.0% 10,000 5.0% $ Million 8,000 4.0% 6,000 3.0% 4,000 2.0% 2,000 1.0% 0 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3* FY19 FY20 FY21 FY22 Total Debt WAVG Interest Rate 25 *Q3 FY22 represents management estimate based on our guidance for Q3 and assumes no stock buy
Slide 26: Convertible Debt
Convertible Debt* 5,000 4,000 $ Million 3,000 2,000 1,000 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY19 FY20 FY21 FY22 26 *Excludes $665.5M in principal of convertible notes the Company issued in December 2020 along with the related capped call options intended to reduce potential dilution from t
Slide 27: Total Convertible Debt Repurchased
Total Convertible Debt Repurchased – Share Dilution Avoidance 8,000 80.0 7,000 $4.15 Billion Principal Value Repurchased 70.0 Share Count - Millions 6,000 60.0 Market Value in $Millions 5,000 50.0 4,000 40.0 3,000 30.0 2,000 20.0 1,000 10.0 0 - $75.00 $80.00 $85.00 $90.00 $95.00 $100.00 $105.00 $110
Slide 28: Fixed Rate vs. Variable Rate Debt
Fixed Rate vs. Variable Rate Debt 14,000 56.0% 12,000 49.0% 42.0% 10,000 $ Million 35.0% 8,000 28.0% 6,000 21.0% 4,000 14.0% 2,000 7.0% 0 0.0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3* FY19 FY20 FY21 FY22 Fixed Variable Variable % of Total Debt 28 *Q3 FY22 represents management estimate based on
Slide 29: Microchip 2.0
Microchip 2.0 Sustained growth from Built company scale and Total System Solutions organic efforts and product line breadth enabled by product line acquisitions through acquisitions breadth Continuing market share Large exposure to Industrial Solutions with very long gains in Microcontrollers and Au
Slide 30: Microchip 2.0 Today
Microchip 2.0 Today Sustained growth from Built company scale and Total System Solutions organic efforts and product line breadth enabled by product line acquisitions through acquisitions breadth Continuing market share Large exposure to Industrial Solutions with very long gains in Microcontrollers
Slide 31: Microchip 3.0
Microchip 3.0 Elite long-term non-GAAP Sustained growth from 6-8% Organic business model of organic efforts focused on Revenue CAGR; 67.5% - 68.5% Gross Margin TSS and Megatrends ~2X industry growth rate* 44% - 46% Operating Margin EBITDA Margin target of Diversified end-market mix Investment in inv
Slide 32: Long-Term Non-GAAP Target Model
Long-Term Non-GAAP Target Model 1H FY22 Long-Term Run Rate Target Revenue $6.4B 6 - 8% CAGR Grow at ~2X industry growth rate** Continued internalization, manufacturing Gross Margin 65.0% 67.5% - 68.5% consolidating, richer product mix and pricing discipline Operating expense investment to drive grow
Slide 33: Capital Return Strategy
Capital Return Strategy Steve Sanghi, Executive Chair
Slide 34: Agenda
Agenda • How We Allocate Our Capital • Debt Paydown Progression • Historical Dividend Growth • Future Cash/Capital Return Strategy 34
Slide 35: Disciplined Capital Allocation Strategy
Disciplined Capital Allocation Strategy Last 10 Years Microchip 3.0 Disciplined, strategic, and opportunistic, R&D, Sales/Marketing organic growth investments. Continued disciplined, strategic, and opportunistic and other organic growth investments. What the P&L can afford. What the P&L can afford.
Slide 36: Net Debt, Adjusted EBITDA & Net Leverage
Net Debt, Adjusted EBITDA & Net Leverage 14,000 7.00 12,000 6.00 10,000 5.00 $ Million 8,000 4.00 6,000 3.00 4,000 2.00 2,000 1.00 0 0.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 FY19 FY20 FY21 FY22 Net Debt* Adjusted EBITDA** Net Leverage 36 * Net debt is defined as total debt less cash/investment
Slide 37: $5.0 Billion Returned to Shareholders
$5.0 Billion Returned to Shareholders $600 $1.10 $500 $1.00 $ Per Share $ Million $400 $0.90 $300 $0.80 $200 $0.70 $100 $0.60 $0 $0.50 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY22* Annual Dividends Paid Annual Dividends $ Per Share 37 * $5.0 billion returned to shareholders
Slide 38: Total Convertible Debt Repurchased
Total Convertible Debt Repurchased – Share Dilution Avoidance 8,000 80.0 7,000 $4.15 Billion Principal Value Repurchased 70.0 Share Count - Millions 6,000 60.0 Market Value in $Millions 5,000 50.0 4,000 40.0 3,000 30.0 2,000 20.0 1,000 10.0 0 - $75.00 $80.00 $85.00 $90.00 $95.00 $100.00 $105.00 $110
Slide 39: Future Capital Return Strategy
Future Capital Return Strategy 39
Slide 40: M&A Strategy Has Achieved its Goals
M&A Strategy Has Achieved its Goals In 2010, we set out to achieve the following goals: 1. Build significant scale to compete with our larger competitors 2. Strategically acquire companies that fit into our embedded control market strategy 3. Build and acquire a product portfolio that would enable u
Slide 41: Current Situation
Current Situation Current annualized revenue run rate of Current valuations are not meeting our ~$7 billion*, we no longer have a scale disciplined financial metrics for M&A. disadvantage to most of our competitors. There is no deal left that we must do. Just reaching debt leverage of 3.0. Remaining
Slide 42: Shift to Capital Return Strategy
Shift to Capital Return Strategy Currently Generate Approximately $550 million in Free Cash Flow (FCF) per Quarter Trigger: Investment grade rating from both Moody’s and Fitch • Increase total cash returned to shareholders from the current ~23% of FCF to ~50% of FCF, after achieving IG rating • Incr
Slide 43: Increasing Dividends
Increasing Dividends Board of Directors Targeting Substantial Growth in Dividends $165 $0.33 $150 $0.30 $135 $0.28 $0.25 $120 $0.23 $105 $ Per Share $0.20 $ Millions $90 $0.18 $75 $0.15 $60 $0.13 $0.10 $45 $0.08 $30 $0.05 $15 $0.03 $0 $0.00 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Slide 44: Stock Buyback
Stock Buyback • Board authorized a new $4 billion stock buyback on November 8th in lieu of the previous 30 million share authorization • To be executed over time based on cash generation, leverage metrics, and market conditions. • Contingent on achieving IG rating 44
Slide 45: Strong Capital Return Focus
Strong Capital Return Focus Existing TSS product portfolio, deleveraging, and improved business model drives shift from M&A to capital return Upon IG rating from Moody’s and Fitch, we plan to increase the cash return from ~23% of FCF now to ~50% of FCF • Increase quarterly dividend growth rate furth
Slide 46: Growth Strategy
Growth Strategy Total System Solutions & Megatrends Rich Simoncic, SVP Analog Power & Interface
Slide 47: Microchip Organic Growth Strategy
Microchip Organic Growth Strategy • Focus on Total System Solutions (TSS) • Diversified portfolio of Smart, Connected and Secure Solutions • Software, firmware, reference designs to speed customer’s time to market • Provide solutions in Megatrend growth areas • Drives growth ≥ 2X corporate growth 47
Slide 48: TSS- Total System Solutions
TSS- Total System Solutions TSS = Total System TSS Purpose Goal Solutions Definition TSS is a portfolio of Create more customer hardware, software and recognized value with Achieve greater services that when our business and than 2X industry growth combined with business technology solutions that wi
Slide 49: Multiple TSS EV Charger Design Wins
Multiple TSS EV Charger Design Wins EV Fast DC Charger Total of 32 Microchip Parts Why Microchip? • SiC – Ruggedness, Performance, Power SiC Gesture Reference Design MOSFET • Touch – Gesture Feature MCU Ethernet • MCU – Modular Design with Software ADC Load USB Switch Support and Connectivity option
Slide 50: TSS eBike - Motor Control
TSS eBike - Motor Control Electric Vehicle Megatrend Anchor Part Number dsPIC33EP64MC504-I/ML Total System Solutions PIC18F26K83T-I/ML MCP1754ST-3002E/MB ATA6561-GAQW-N *2 MCP16301T-I/CHY *2 MCP6024T-I/ST MCP16331T-E/CH AT24C64D-XHM-T MIC28512-1YFL-TR MCP1754ST-5002E/MB *2 Repeated at 1000’s of cust
Slide 51: Storage Attach Revenue
Storage Attach Revenue Storage Anchor Products TSS SAM Summary $70 $60 $50 Millions $40 $30 Data Center attach: $20 5-25 $10 $- 2021 2022 2023 2024 NVMe PCIe4 SSD Controller NVMe PCIe5 SSD Controller NVMe PCIe4 8ch SSD Controller NVMe SSD Controller Yorktown-Lite parts per board PCIe4 Switch PCIe5 S
Slide 52: Turbocharging Revenue Growth Using AI/ML
Turbocharging Revenue Growth Using AI/ML Customer MCHP Projects Google Solutions Analytics MCHP has greater then 250K devices offering AI / ML Reference millions of solution Engine Designs combinations based on customer needs mD and MCHP Web Channel Customer and Sales Partners 52 * Includes market s
Slide 53: Megatrends Accelerating Growth
Megatrends Accelerating Growth IoT/Edge Computing AI/Machine Learning 5G Data Centers ADAS/Autonomous Driving Electric Vehicles 53
Slide 54: Summary
Summary $22.2B Focus on Total System Solutions (TSS) & Smart|Connected|Secure $11.4B Solutions in Megatrend Growth Areas 2020 2025 14.3% SAM CAGR 54 Source: Microchip internal estimate
Slide 55: Growth Strategy: IoT/Edge Computing
Growth Strategy IoT/Edge Computing Steve Drehobl, SVP MCU8 & MCU16
Slide 56: IoT/Edge Computing – SAM Growth Rates
IoT/Edge Computing – SAM Growth Rates $7.4B $4.0B 2020 2025 13% SAM CAGR 56 Source: Markets & Markets, 2020 Report, Fortune Business Insights 2021
Slide 57: Challenges of Data Processing
Challenges of Data Processing Cloud vs. Edge Methods needed to Push the More devices, sending more data process large amounts data processing results in large cost and power of data and reduce latency to the “Edge” increases at data centers 57
Slide 58: Engaging With IoT/Edge Computing Customers
Engaging With IoT/Edge Computing Customers to Solve Complex Problems Bringing SMART to IoT/Edge Computing Connecting the SMART Securing it ALL Total IoT/Edge System Solutions simplifies the customer’s challenge 58
Slide 59: Bringing SMART to IoT/Edge Computing
Bringing SMART to IoT/Edge Computing 8-bit 16-bit 32-bit SoC FPGAs PIC® MCUs PIC® MCUs AVR® MCUs dsPIC® DSCs w/ embedded w/ embedded 32-bit MCU quad core 64-bit MPU 59
Slide 60: Bringing SMART With Machine Learning
Bringing SMART With Machine Learning Smart Human Predictive Maintenance Smart Vision Machine Interface 32-bit MCUs/MPUs 8/16/32-bit MCUs 8/16/32-bit MCUs/MPUs FPGAs, SoC FPGAs 60
Slide 61: Bringing SMART With Machine Learning
Bringing SMART With Machine Learning Predictive Maintenance Object Recognition & Classification Entry-level machine learning Advanced AI/ML Using FPGAs using 8-bit microcontrollers and SOC FPGAs 61
Slide 62: Connecting the SMART in IoT/Edge Computing
Connecting the SMART in IoT/Edge Computing Leader in Wired USB and Ethernet Technology USB Ethernet 62
Slide 63: Securing the SMART in IoT/Edge Computing
Securing the SMART in IoT/Edge Computing The Leader in Securing Embedded Data Scalable Security Solutions Secure FPGAs Security ICs Security-Focused MCUs Security Design MPUs Partners Optimized Trust Platforms From Root-of-Trust to DoD-level Security Root of Trust | Secure Supply Chain | Anti-Tamper
Slide 64: Total System Solutions for IoT/Edge Computing
Total System Solutions for IoT/Edge Computing Hardware Timing & Frequency Power Management Software Silicon Bring the SMART Analog CONNECT the SMART Mixed Signal TSS With Breadth SECURE of theMicrochip SMART Portfolio Simplify the Customer’s Complexity – Accelerate Microchip Growth 64
Slide 65: Well Positioned For IoT/Edge Growth
Well Positioned For IoT/Edge Growth at 2X of Microchip’s Organic Growth $7.4B Bringing SMART to IoT/Edge Computing $4.0B Connecting the SMART Securing it ALL Total IoT/Edge System Solutions 2020 2025 13% SAM CAGR 65
Slide 66: Growth Strategy: Data Center
Growth Strategy Data Center Pete Hazen, VP Data Center Solutions
Slide 67: Data Center Summary
Data Center Summary Partner of choice to enable Total System Delivering Smart, SAM growing to ~$4B Solutions for Connected and Secure with revenue growth Cloud Providers, Server Solutions 2X the market and Storage OEMs & Media Vendors 67 Source: Microchip internal estimate
Slide 68: Microchip Data Center Solutions
Microchip Data Center Solutions Connecting, Managing & Securing the World’s Information Storage Memory Compute Infrastructure Infrastructure Infrastructure 68
Slide 69: Data Center Market Growth
Data Center Market Growth $3.8B Strong Market Growth • SAM growing by +$1B $2.9B • >7.5% CAGR Proven Track Record • Growing >2X the market Storage Infrastructure • 3rd consecutive year of SSD Solutions double-digit growth Broad DC TSS Portfolio 2021 2025 CAGR: >7.5% 69 Source: Microchip internal est
Slide 70: Data Center Market Segments
Data Center Market Segments Cloud Providers, SSDs, Storage & Server OEMs Cloud Providers, Server/Storage OEMs, Media OEMs Storage & Compute Solid-State Drive Broad Data Center Infrastructure Solutions TSS Portfolio Cloud Providers & Server OEMs Memory Smart Flashtec® Infrastructure Storage SSD Contr
Slide 71: Leading Provider of Data Center Solutions
Leading Provider of Data Center Solutions • Deep Customer Engagements with Cloud Providers, ODMs, OEMs & Media Vendors • Configurable Architectures enable Customer Personalization & Differentiation • Broad Ecosystem Support enabling Compute and AI/ML Servers, Storage Servers and SSDs • Products Alig
Slide 72: Smart Storage Controllers & Expanders
Smart Storage Controllers & Expanders Clocking Sensors Expanded Customer Adoption Total System Solutions: • Storage Controller • Oscillators Storage Controller • Sensors • Memory (EEPROM) • Clocking Memory (EEPROM) Oscillators SmartRAID Ultra 3258P-32i /e • Trusted Enterprise Solution with Tens of M
Slide 73: Flashtec NVMe SSD Solutions
Flashtec® NVMe SSD Solutions SSD Controller Microcontroller Strong Market Growth Memory (EEPROM) Total Systems Solutions • SSD Controller Clocking • Sensors • Microcontroller Microchip DS1123 • Memory (EEPROM) • Clocking Oscillators Sensors • 4 Generations of SSD Controllers for the Datacenter • Bro
Slide 74: Securing Information from Edge to Cloud
Securing Information from Edge to Cloud Proven Solution Stack Data Protection Ensure Information Integrity and Performance Cloud Datacenter Data at Rest Encryption Solutions Encryption Ensure Information Confidentiality Enterprise Storage Server Trusted Platform Secure Boot & Update Support Hardware
Slide 75: Data Center Summary
Data Center Summary Partner of choice to enable Total System Delivering Smart, SAM growing to ~$4B Solutions for Connected and Secure with revenue growth Cloud Providers, Server Solutions 2X the market and Storage OEMs & Media Vendors 75
Slide 76: Growth Strategy: ADAS & EV
Growth Strategy ADAS & EV Matthias Kaestner, VP Automotive
Slide 77: Automotive Semi TAM and Megatrend SAM
Automotive Semi TAM and Megatrend SAM $61B $9.1B $45B $4.1B WW Auto EV & Semi ADAS Market SAM 2021 2025 2020 2025 8% Auto 17.5% Megatrend TAM CAGR SAM CAGR 77 Sources: Infinity Research, 360 Research, Microchip
Slide 78: Automotive Megatrends
Automotive Megatrends 15% 22% Semiconductor Semiconductor CAGR ‘21-’25 CAGR ‘21-’25 Safe and Autonomous Electrified: Convenient: and Secure: Energy Storage and Energy Sensor Network on Wheels Datacenter on Wheels Conversion on Wheels 78 Source: Microchip internal estimate
Slide 79: From Buttons and Switches (2013)...
From Buttons and Switches (2013)... 79 Source: https://media.daimler.com/
Slide 80: …to Personalized Screens and Touch Sensors
…to Personalized Screens and Touch Sensors #1 in Touch Screens #1 in Touch Buttons 10+ touch devices/car 80 Source: https://media.daimler.com/
Slide 81: Assisted Driving: Safety and Comfort
Assisted Driving: Safety and Comfort Sensor Processing Vehicle Computer/ Communication ADAS Controller MCUs, MPUs & FPGAs LIN PCIe® Switch Security/Trust Anchor CAN& CANFD Controllers FPGA & MPUs Oscillators 802.3 Ethernet controllers Power Management Memory 10Base-T1S Ethernet Power Management 100B
Slide 82: Automotive Value Paradigm Shift
Automotive Value Paradigm Shift Past - Hardware Defined Handling, power, torque, speed 82
Slide 83: Automotive Value Paradigm Shift
Automotive Value Paradigm Shift Future - Software Defined ADAS, Infotainment, OTA updates, personalization, feature upgrades, services on demand 83
Slide 84: Datacenter on Wheels: PCIe and Ethernet
… Datacenter on Wheels: PCIe® and Ethernet High-Speed PCIe Backbone Ethernet 10BASE-T1S Ethernet 10BASE-T1S Central Computers Ethernet 100/1000 84
Slide 85: Energy Conversion and Storage on Wheels
Energy Conversion and Storage on Wheels eSound Thermal System/ Compressor • DSP Processing • Motor Control • Networking Electric Motor • Power Monitoring • Temp Sensing • Motor Control • Temp Sensing • Networking • Motor Position Sensing EV Charging • Silicon Carbide • Temp Sensing • Digital Control
Slide 86: EV Fast Charger
EV Fast Charger Communication Interfaces SiC Diodes and FETs Temp Secure Sense Payment Energy Metering Charging Mgmt MCUs Touch Screen Controller Cooling Fan Motor Control MCU 86
Slide 87: SiC Beyond e-Mobility…
SiC Beyond e-Mobility… Highly Efficient Power Conversion 87 87
Slide 88: Automotive Megatrends
Automotive Megatrends Safe and Autonomous Electrified: Convenient: and Secure: Energy Storage and Energy Sensor Network on Wheels Datacenter on Wheels Conversion on Wheels
Slide 89: Growth Strategy: 5G
Growth Strategy 5G Patrick Johnson, SVP Mixed Signal, Timing & FPGA
Slide 90: 4G to 5G – What is the Difference?
4G to 5G – What is the Difference? 10x Bandwidth 10x IoT Connections 10X Decrease in Latency 90
Slide 91: 4G/5G Latency
4G/5G Latency 5G Metro/Core 5G RAN Edge Central Data Center Data Center 10 ms <1 ms Send Request Receive Response Latency 4G 5G 91
Slide 92: 5G Timing/Network Synchronization
5G Timing/Network Synchronization Integrated Grand 5G Metro/Core Central Master 1100 5G RAN Edge TimeProvider 4100 TimeProvider® 4100 Data Center Data Center TimeProvider 4100 SyncServer® S650 Time Server TimePictra® Synchronization Management >90% Commercial Clocks Industry leader in 7 out of Top 1
Slide 93: 5G Semiconductor Market
5G Semiconductor Market SAM Growth Rates $600M $140M 2021 2025 CAGR: 43% 93 Sources: IDC, Microchip estimates
Slide 94: End-to-End Total System Solutions
End-to-End Total System Solutions Timing Solutions Power Solutions Security Solutions • Timing System: Grandmasters, pRTC • Digital Power ICs: PMIC, Secure MCU • IC: Root of Trust, TPM, Authentication • Timing Software: IEEE 1588 Algorithm • Analog Power ICs: SiC, PMIC • FPGA: Secure Boot, DPA resis
Slide 95: 100G+ Optical Transport Network (OTN)
100G+ Optical Transport Network (OTN) DIGI OTN Processors Reference Design DCO Ethernet FPGA EEPROM Switch PCIe® Switch Voltage Regulators DIGI Family Hot Swap OTN Controller Processor Temp. Fan Sensor Controller Current Sensor Clock Buffer PLL MEMS Secure Boot 95 Osc.
Slide 96: Smart SFP
Smart SFP Small Form-Factor Pluggable Microchip Low-Power FPGA 96
Slide 97: Industry's Broadest Timing Solutions
Industry’s Broadest Timing Solutions Timing Silicon Timing Software Timing Systems Network Grandmaster Synchronization IEEE-1588 & SyncE TimeProvider® Series Algorithm Software Oscillators Time Server PTP & Servo Algorithm Software SyncServer® Instrument Synchronization & Clock Products Clock Genera
Slide 98: Summary
Summary 5G is 10x Over 4G Driving 43% CAGR SAM growth opportunity for Microchip Microchip Timing & Synchronization provides the heartbeat for 5G Networks 98
Slide 99: Growth Strategy: Client Engagement
Growth Strategy Client Engagement Joe Krawczyk, VP Worldwide Client Engagement
Slide 100: Customer Engagement Strategy
Customer Engagement Strategy Growing a broad and diverse customer base Building on a foundation of diverse and sustainable revenue 100
Slide 101: Growing a Broad and Diverse Customer Base
Growing a Broad and Diverse Customer Base Direct Customer Engagement Distributor & Sales Serving customers Rep Engagement at every level, Self-Sufficiency growing design Solutions wins to revenue 101
Slide 102: Microchip Team Serving Highest-Value Customers
Microchip Team Serving Highest-Value Customers • Aligned with Microchip business units, deployed to highest value customers and megatrend growth • Microchip sales resource coverage on ~7,000 Focus Accounts • Supported by network of field application engineers, engineering specialist, and customer se
Slide 103: Multiplying Results Through Our Partners
Multiplying Results Through Our Partners Different Partners Bring Unique Value to Customers Independent Global Distributors Regional Distributors Catalog Distributors Sales Reps • Global footprint • Regional footprint and • Global e-commerce • Regional footprint and resources resources footprint and
Slide 104: Delivering Web-Based Self-Sufficiency to Broad Market
Delivering Web-Based Self-Sufficiency to Broad Market Learning and and Design Education Support Development Tool and Products Software www.microchip.com Solutions Ordering and And Applications Applications Delivery Ecosystem enabling customer discovery, design and delivery 104
Slide 105: Foundation of Diverse Revenue
Foundation of Diverse Revenue Revenue Fulfillment Revenue Creation Americas 26% Asia Americas Asia 37% 38% 55% Europe 19% Europe 25% 105 * Revenue information based on the fiscal year ending March 31, 2021
Slide 106: Foundation of Diverse Revenue
Foundation of Diverse Revenue Sales Channel Revenue Distribution Revenue Catalog 4% Global Distribution 35% Direct 50% 50% Regional 61% 106 * Revenue information based on the fiscal year ending March 31, 2021
Slide 107: Foundation of Diverse Revenue
Foundation of Diverse Revenue 12% 29% Industrial 13% Data Center & Computing Automotive Communication 13% Consumer Aerospace & Defense 15% 18% 107 * End market diversification based on management estimates for the fiscal year ending March 31, 2021
Slide 108: Foundation of Sustainable Revenue
Foundation of Sustainable Revenue > 120,000 customers Sustained customer relationships, over multiple design generations Delivering solutions to all customers Aligned with Megatrend Growth Total System Solutions Record Design-Wins 108
Slide 109: Customer Engagement Summary
Customer Engagement Summary Growing a broad and diverse customer base Building on a foundation of diverse and sustainable revenue 109
Slide 110: Enabling Our Growth Strategy: Manufacturing
Enabling Our Growth Strategy Manufacturing Mike Finley, SVP of Front-End Operations Mathew Bunker, SVP of Back-End Operations
Slide 111: Manufacturing: The Microchip Advantage
Manufacturing: The Microchip Advantage 111
Slide 112: Manufacturing Strategy
Manufacturing Strategy Strategic relationship with foundries, Mix of internal and external manufacturing assembly/test subcontractors, equipment to give us the right balance of technology, and raw material suppliers cost and supply Investment in internal capacity for trailing Investment in inventory
Slide 113: Microchip's Manufacturing Process
Microchip’s Manufacturing Process 113
Slide 114: Internal Manufacturing Locations
Internal Manufacturing Locations 6 High-Volume and 14 Specialty Factories Fab Assembly and Test 114
Slide 115: Long Process Technology and Product Life Cycles
Long Process Technology and Product Life Cycles Revenue Example of MCU Manufacturing Process Technology Life Cycle 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Year Develop processes and On-going investments in Customer driven products that deliver these technologies drive obsolescence policy
Slide 116: Balance of Internal/External Manufacturing
Balance of Internal/External Manufacturing 43% 39% 45% Wafers 57% 61% 55% 30% 38% 41% Internal Assembly 62% 59% External 70% 20% 37% Final Test 51% 49% 63% 80% FY2019 FY2021 5 Year Target 116
Slide 117: Balance of Internal/External Capacity
Balance of Internal/External Capacity Internal Foundry 3-6 12-16 40-65 90-130 110-450 >450 nm nm nm nm nm nm 117
Slide 118: Invest in Inventory
Invest in Inventory • Long-life products and durable end markets reduce inventory obsolescence risks • Increasing inventory targets to 130-150 days • Enhances ability to service customers • More effective use of capital through peaks and troughs that preserves gross margins 115- 120 130-150 • Happie
Slide 119: Responsible Growth
Responsible Growth Waste Water Energy GHG Reduction Management Consumption Emissions and Reuse • Microchip is committed to reducing the environmental impact of our operations and products within the global communities in which we operate and where our products are used • We also contribute to reduci
Slide 120: Manufacturing Summary
Manufacturing Summary Strategic relationship with foundries, Mix of internal and external manufacturing assembly/test subcontractors, equipment to give us the right balance of technology, and raw material suppliers cost and supply Investment in internal capacity for trailing Investment in inventory
Slide 121: Enabling Our Growth Strategy: Sustainability
Enabling Our Growth Strategy Sustainability Ganesh Moorthy, President & CEO
Slide 122: Sustainability At Microchip
Sustainability At Microchip • Sustainability embeds value generation into business strategy for the long-term benefit of all stakeholders – it’s in our DNA • Sustainability strategy incorporates environmental, social and governance (ESG) considerations into important business decisions • SASB framew
Slide 123: Net Zero
NET ZER 5049 INN MicrocHip
Slide 124: Enabling Our Growth Strategy: Culture
Enabling Our Growth Strategy Culture Ganesh Moorthy, President & CEO
Slide 125: Microchip Culture
Microchip Culture A Systems Thinking Approach Strategic Formula Policies & Inclusion, diversity, and equity are not just words; Procedures We have consciously designed the enterprise they are part of our guiding value that Employees to achieve our strategic formula (Mission) by Company Management ar
Slide 126: Culture – An Enduring Competitive Advantage
Culture – An Enduring Competitive Advantage • Strong, practiced guiding values • Teamwork trumps prima donnas • Shared rewards and sacrifices • Non-commissioned sales force • Substantial investment in training • Investment in leadership development and succession planning Culture Eats Strategy For B
Slide 127: Guiding Values
Guiding Values • Quality comes first • Customers are our focus • Continuous improvement is essential • Employees are our greatest strength • Products and technology are our foundation • Total cycle times are optimized • Safety and security are never compromised • Profits and growth provide for every
Slide 128: Guiding Value Means Over Time
Guiding Value Means Over Time (Worldwide) 100.0 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 0.0 Quality Customers Improve Employees Products Cycle Time Safety Profits Comm. Partners Ethics 1990 1995 2000 2006 2010 2015 2020 128
Slide 129: But Don't Take Our Word For It
But Don’t Take Our Word For It 129
Slide 130: Culture outperforms strategy every time
“Culture outperforms strategy every time; and culture with strategy is unbeatable.” 130
Slide 131: Summary
Summary | Microchip’s Investor and Analyst Day : AN MicrocHip
Slide 132: Microchip 3.0
Microchip 3.0 Elite long-term non-GAAP Sustained growth from 6-8% Organic business model of organic efforts focused on Revenue CAGR; 67.5% - 68.5% Gross Margin TSS and Megatrends ~2X industry growth rate* 44% - 46% Operating Margin EBITDA Margin target of Diversified end-market mix Investment in inv
Slide 133: Long-Term Non-GAAP Target Model
Long-Term Non-GAAP Target Model 1H FY22 Long-Term Run Rate Target Revenue $6.4B 6 - 8% CAGR Grow at ~2X industry growth rate** Continued internalization, manufacturing Gross Margin 65.0% 67.5% - 68.5% consolidating, richer product mix and pricing discipline Operating expense investment to drive grow
Slide 134: Microchip's Winning Formula
Microchip’s Winning Formula Grow organically at Generate significant ~2X industry growth Extend our strong cash and increase rate while foundation built on capital returned to significantly culture and owners to 100% of expanding gross and sustainability Free Cash Flow operating margins Our best is
Slide 135: Thank You!
Thank You! Empowering Innovation & Delivering Stakeholder Results 135
Slide 136: Appendix
Appendix | Microchip’s Investor and Analyst Day : AN MicrocHip
Slide 137: Non-GAAP Reconciliation
Non-GAAP Reconciliation FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Net Sales, as reported* $ 1,383.2 $ 1,581.6 $ 1,931.2 $ 2,147.0 $ 2,173.3 $ 3,407.8 $ 3,980.8 $ 5,349.5 $ 5,274.2 $ 5,438.4 $ 6,624.0 Distributor revenue recognition adjustment - 24.8 - 13.6 40.5 93.9 - - - - -
Slide 138: Non-GAAP Reconciliation
Non-GAAP Reconciliation FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 Q1 Q2 FY 22 Net cash provided by operations, as reported $ 412.0 $ 459.4 $ 676.6 $ 721.2 $ 744.4 $ 1,059.5 $ 1,419.6 $ 1,674.8 $ 1,543.8 $ 1,916.5 $ 629.9 $ 611.7 $ 2,559.5 Capital expenditures (62.4) (50.8) (113.1)
Slide 139: Net Debt
Net Debt* Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q4FY20 Q1FY21 Q2FY21 Q3FY21 Q4FY21 Q1FY22 Q2FY22 Senior Indebtedness Revolving Credit Facility $ 3,334.0 $ 3,100.0 $ 2,742.5 $ 3,266.5 $ 3,197.0 $ 2,881.5 $ 2,624.5 $ 2,388.5 $ 1,454.6 $ 1,919.6 $ 2,356.6 $ 2,346.6 $ 1,958.6 $ 1,806.6 Term L
Slide 140: Adjusted EBITDA
Adjusted EBITDA* FY 12 FY 13 FY 14 FY 15 FY 16 FY 17 FY 18 FY 19 FY 20 FY 21 FY 22 Net income, as reported $ 336.7 $ 127.4 $ 395.3 $ 369.0 $ 324.1 $ 164.6 $ 255.4 $ 355.9 $ 570.6 $ 349.4 $ 1,105.3 Discontinued operations, net - - - - - 6.0 - - - - - Noncontrolling interests - - - (3.7) (0.2) - - - -